Less than a month before the Bank of Japan’s next meeting on January
21-22, the minutes are expected to confirm the bank’s
ultra-accommodative monetary policy stance, as well as the central
bank’s expectations for slow economic growth in the months ahead.

Jobless claims have started to return to normal levels after the
spikes caused by the effects of the “super storm” Sandy and are forecast
to stay in a range with a reading of 365K, compared with 361K in the
previous week.

Not much optimism is expected to be instilled by the Japanese
manufacturing sector as the index is forecast to stay in contraction
territory with a reading of 47.1 in December from 46.5 in the previous
month.

The Japanese national core inflation gauge is forecast to fall back
in deflation territory with a reading of -0.1% y/y in November from the
flat 0% y/y in October. With the index still far from the 1% inflation
target and with the economy in a recession, the report could keep the
JPY under pressure as the market continues to price expectations that
the Bank of Japan might be forced into raising the inflation target to
2% and could resort to more aggressive quantitative easing at the bank’s
next meeting on January 21-22.

Falling domestic consumption is one of the main contributors to the
ailing economy in Japan, but the retail sales might show some hopeful
signs with an increase by 1.1% y/y in November, compared with the 1.2%
y/y drop in the previous month.

The Italian Treasury will sell its benchmark 10-year government bonds
and traders will watch the auction results closely in order to find out
if investors will demand higher premiums to hold the debt of the
troubled nation facing political uncertainty ahead of the election in
February. Rising borrowing costs and weak demand could weigh on the
euro.

The last spotlight event of 2012 could end the sequence of U.S. data
on a weak note with the pending home sales index forecast to decline by
0.3% m/m in November, following the record 5.2% m/m increase in October.